Fabrinet at Rosenblatt Technology Summit Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Mike Genoves - Rosenblatt Securities - Analyst : Well, I have a lot of questions about Fabrinet. I mean, I followed you closely over the years, but never quite got coverage of the stock, I would say. But -- so I have questions that probably I haven't talked to as much as I wanted to over the years. But from watching from the distance that I've been watching, I've been really impressed. It seems like in the industry of optical manufacturing, there's something going on here more than just --. Fabrinet is a good company and they know how to manage their gross margins. It seems to me when I talk to people in the industry that you're really the go-to place for optical manufacturing and you can do things more easily or do things that others can't. When I look at the company that makes all the semiconductors, TSMC, I think that they've built up something there on a larger scale. But you remind me of what they have they're sort of this hub for the industry. So from your point of view, talk about how you think of Fabrinet as being unique and whether that actually creates any barriers to entry for competitors.

Question: Mike Genoves - Rosenblatt Securities - Analyst : Right. So are there other specialized optical contract manufacturers or you just compete with the optical efforts of the larger EMS players?

Question: Mike Genoves - Rosenblatt Securities - Analyst : Great. So I think the latest news in the industry, obviously from this week is Ciena. But before Ciena, I wanted to ask you about one of your larger customers, Lumentum because I think when Lumentum preannounced and then Lumentum actually announced, I think that people thought that Fabrinet would almost necessarily have to have a similar size miss or inventory issue. And really your earnings were, in my opinion, quite good. And I think maybe a little bit lower than consensus on the guide, but we're much much closer than was feared, I think in my opinion. So just explain to me how we could be so wrong in thinking well, if Lumentum sees this, Fabrinet has to see it. And why we -- what we missed when we were so fearful over there?

Question: Mike Genoves - Rosenblatt Securities - Analyst : Yeah, I'd like to ask more about this 800G AI data center product because I'm not super familiar with it. I mean, I know Ciena talked about WaveLogic 6, which would have implications of putting coherent inside the data center, but there must be other companies doing that as well. So have you -- is there any other color on that product or we're working with there?

Question: Mike Genoves - Rosenblatt Securities - Analyst : Yeah, that's interesting. And I just want to ask another question just -- sorry to mention to names of vendors directly, but it just helps to ask the question. I guess with Arista, right? I mean, they just recently told us that basically last quarter, this quarter, and the next quarter or two, really the vast majority of what's being spent on AI is for processing and it basically is chips. And that they really expected an inflection in the switching portion of that in, I would say, the second half of '24. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 07, 2023 / 6:00PM, FN.N - Fabrinet at Rosenblatt Technology Summit So and it sounds like I mean, these very short reach interconnects would be with the switches I imagine. So is the timing of where you see this being deployed? Is it sooner, or in-line, or after -- that's kind of a year from now timeframe, where we have seen inflection in the networks?

Question: Mike Genoves - Rosenblatt Securities - Analyst : Okay. Interesting.

Question: Mike Genoves - Rosenblatt Securities - Analyst : Great. Okay. And let's see -- so now getting back actually --. So I did want to ask you about Ciena with sort of the optical systems companies talking about very quick improvement in lead times. In fact, they're saying faster than anyone thought, which is creating some order push-outs because customers are saying hold on wait, we still want that equipment. It doesn't look like anyone canceling orders, but they're reprofiling them, large customers. Ciena just had large telco customers in the US reprofiling orders. So I guess my question is -- I mean I have asked you about Lumentum, there is some Ciena in this question. But what do you look at in terms of end market demand and indicators of the end market to just sort of help forecast the industry for your -- that you're playing in, because these guys can have these inventory and backlog things going on. But what's important to you on your dashboard?

Question: Mike Genoves - Rosenblatt Securities - Analyst : Okay. That's [the tough]. Great. So I believe I think it was on your last call. I hope I'm not getting this wrong where I mean there were still, I believe, some supply constraints in telecom and I think specifically in silicon photonics. But with this rapid improvement has -- I mean should we -- I guess what I really want to ask about is not just supply there, but the demand there. Does demand in that particular area, that was just a supply problem that we have demand, and what kind of applications are driving demand for silicon photonics?

Question: Mike Genoves - Rosenblatt Securities - Analyst : Well, is it fair to say that supply constraints there are lifting or is that --?

Question: Mike Genoves - Rosenblatt Securities - Analyst : Okay. And I think last quarter, 400G is strong, but we saw some weakening in 100G. And I guess my question is, is that just lumpiness or is this a secular -- now we're sort of 100G is declining and 400G is taking off. Do you have an opinion on --?

Question: Mike Genoves - Rosenblatt Securities - Analyst : I guess -- I want to think about how to think about your company versus some of the other companies out there where a lot of companies in our industry, gross margin really got hit very hard on -- during the supply chain crisis. And now those headwinds have turned into tailwinds. But I see in recent quarters even with the supply chain, I mean your gross margin seems to be at the high end of your range. I'm just wondering as we exit, as we've been exiting the crisis, and we continue to exit the crisis is there anything in the supply chain, that's a tailwind for margins for you? Or how do I think about that?

Question: Mike Genoves - Rosenblatt Securities - Analyst : No, see I guess I'm not comparing it to other contract manufacturers, I'm comparing you to the component and the systems companies.

Question: Mike Genoves - Rosenblatt Securities - Analyst : When I say the industry, I'm talking about the optical industry, not the [investor] industry.

Question: Mike Genoves - Rosenblatt Securities - Analyst : So I think I mean, that's why I think it's different. So basically I'm wondering should we think about there being any kind of margin tailwind from supply chain improvement. Or is that that's not really relevant to this model?

Question: Mike Genoves - Rosenblatt Securities - Analyst : That's helpful. That makes a lot of sense. It's very helpful. Also before we're talking about 100G, we're talking about 400G, and you mentioned the very short reach, 800G for AI, data centers to help, I guess, put the traffic where it needs to be for the processing. But what else -- do you have other things at 800G that you're working on, either datacom or telecom products. How important is 800G as a product category for you?

Question: Mike Genoves - Rosenblatt Securities - Analyst : Okay. So again, I mean, well just help me visualize this so you have I mean, I know within optical, you have telecom, and you have datacom, and then you have your non-optical business, but then do you also think about the business as being a systems versus a subsystems component business and you guys provide numbers to split that out.

Question: Mike Genoves - Rosenblatt Securities - Analyst : With DZS I think of some of their products being different than the other products I'm used to thinking about you're making. But I mean, do you have a lot of experience in the pond-broadband-access space or is this kind of newer for you these kind of products, and how different is it from your point of view?

Question: Mike Genoves - Rosenblatt Securities - Analyst : And when you have a win like that, then you go to Nokia, and Adtran, and [Calix] and say, look what we can do to make these products?

Question: Mike Genoves - Rosenblatt Securities - Analyst : Now I thought it was interesting earlier when you were talking about I mean, you're saying, okay, we're not immune to inventory corrections, pushouts in the industry, things like that. But we have this diversification. We have exposure to these growth products. But even in that discussion of diversification, I guess we didn't get to talk about the non-optical products. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 07, 2023 / 6:00PM, FN.N - Fabrinet at Rosenblatt Technology Summit So I mean just help level set me, what percentage of your overall business is that and what are those exposures to what to what end. What's kind of going on there now? Are there any that have been weaker, been stronger just based on the macro trends in different parts of the economy? And which parts are you most excited about going forward?

Question: Mike Genoves - Rosenblatt Securities - Analyst : So I understand. But you were saying, I mean I think the last thing I heard you say was basically that most LiDAR makers are your customer. That's about where we dropped off.

Question: Mike Genoves - Rosenblatt Securities - Analyst : Yeah.

Question: Mike Genoves - Rosenblatt Securities - Analyst : Right. Yeah, just you make what? Tell me again, what you make where and how, and what -- Fabrinet Met West makes what versus the things that are made in Thailand.

Question: Mike Genoves - Rosenblatt Securities - Analyst : Okay. Now, how do you count your customers in different geographic buckets? Just basically, how do you -- what are your definitions there? And I mean, I think that you have a lot of -- I mean you have a lot of international revenue. So just help me understand what kind of customers those are.

Question: Mike Genoves - Rosenblatt Securities - Analyst : Yeah, right. So I understand the Silicon Valley on-ramp, that makes sense. The Israel on-ramp? Is that just -- is that for the whole EMEA region? Or is there something specific about Israel? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 07, 2023 / 6:00PM, FN.N - Fabrinet at Rosenblatt Technology Summit

Question: Mike Genoves - Rosenblatt Securities - Analyst : Right. Now, just on the business model going forward, help me understand if -- is earnings. Should I expect earnings to grow at the same rate of revenues or is there something different on the earnings line than revenue, that will make a difference?

Question: Mike Genoves - Rosenblatt Securities - Analyst : Okay. We have about a minute or two left, Seamus. And I really enjoyed the conversation, that was great. I guess I would just ask is there -- we have quite a few investors on the line, some who know the story really well, and some were much newer to it. Is there any I mean especially anything that we missed, but just would you want to focus on for a close here? I'm going to leave that to you.

Question: Mike Genoves - Rosenblatt Securities - Analyst : Fantastic, Seamus. I'm glad that we got a chance to have this conversation. And I look forward to the next one. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 07, 2023 / 6:00PM, FN.N - Fabrinet at Rosenblatt Technology Summit